Telco industry bid adieu to growth for 5 years, as Jio moved to top spot

India’s wireless telephony industry is now back at the same level of revenues it had before Reliance Jio Infocomm Ltd’s launch in 2016. But while industry revenues are flat, Jio’s market share has gone up from zero to as high as 38% during this period, data collated by Jefferies India Pvt. Ltd shows.

In other words, revenues of all other telecom operators have declined 38%, not to mention the massive cash burn of those who have survived thus far. Bharti Airtel Ltd has hung on to its pre-Jio market share of around 31-32%, while Vodafone Idea Ltd’s share has nearly halved to 21%. A number of other telcos shut shop along the way.

Jio itself hadn’t foreseen that industry revenues would be hit as much after its launch.

In March 2017, when Jio had still not started booking revenues, it had said in a presentation to investors that it sees overall industry revenues growing to ₹3 trillion by financial year 2020-21. The annual revenue run-rate before Jio’s entry stood at ₹1.8 trillion.

“Industry growth was low in the last five years—next five years to see rapid growth with data explosion,” the presentation had said.

Ironically, annual industry growth rates were in double digits in the five years before Jio’s launch, and flat in the five years since.

While the so-called data explosion has been far ahead of Jio’s ambitious targets, revenues have lagged behind because of its cut-throat pricing.

“Leading global consultants have forecasted demand for data at 500-600 crore GB per month,” it said at a time when Jio’s free services were resulting in usage of 100 crore GB/month and the rest of the industry carried data of only 20 crore GB.

In the December 2020 quarter, Jio alone reported monthly data traffic of around 500 crore GB/month on its wireless network. With Airtel and Vodafone Idea’s traffic, the total worked out to around 925 crore GB, much higher than the upper end of Jio’s highly ambitious target.

But also note that this data explosion was possible because of a big climbdown on tariff expectations.

Jio had envisaged pricing every GB of data at ₹50 at the time, but current yields are at only ₹12.5 per GB, and that too after a hefty tariff hike in December 2019.

Low tariffs had driven industry revenues down to an annual run-rate of ₹1.28 trillion at one point, 30% lower than pre-Jio levels.

While low tariffs drove industry revenues down, they also helped Jio’s market share gains, as its tariffs have always been lower than competitors.

Even so, the firm’s high return expectations are nowhere near being met. The targeted return ratios were around 18-19%, the company had said at the time of the launch.

“Current return on capital of Jio is in single digits,” says an analyst at a domestic institutional brokerage.

While Airtel’s revenue is back at pre-Jio levels, its operating profits are about 15% lower, not to mention the high cash burn in the past five years and a more bloated balance sheet.